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Shell to curb pay, bonuses after investor revolt

REUTERS

LONDON (Reuters) – Royal Dutch Shell Plc (RDSa.L) said it was overhauling its pay practices for top management, including a pay freeze for its chief executive, Peter Voser, and a limit on bonuses, after a shareholder revolt last year.

The head of Shell’s remuneration committee said salaries for Voser and Chief Financial Officer Simon Henry, which are 20 percent lower than their predecessors’, were being frozen until 2011.

Directors will not, this year, be allowed to award management bonuses if they fail to meet pre-agreed targets.

Top management received bonuses for 2008, despite not hitting targets, prompting 60 percent of Shell investors who voted, to oppose the 2008 remuneration report.

Hans Wijers, Chairman of Shell’s Remuneration Committee told investors in a letter, a copy of which was published on Shell’s web site on Tuesday, that he wanted to “demonstrate appropriate restraint in the current economic environment”.

Investors in European corporates, who traditionally vote overwhelmingly in favor of managements’ plans, registered their dissatisfaction with companies’ handling of and contribution to the global economic crisis in unprecedented numbers in 2009.

One third of voters at mining group Xstrata’s (XTA.L) annual general meeting opposed its pay policy, and more than a third of investors opposed oil major BP’s (BP.L) executive pay.

A majority of investors in troubled bank Royal Bank of Scotland (RBS.L), housebuilder Bellway (BWY.L) and Provident Financial (PFG.L) opposed pay plans in 2009 and last week, residential landlord Grainger (GRI.L) lost a shareholder vote on executive pay.

STRUCTURE REMAINS THE SAME

Hague-based Shell’s bonus structure remains largely intact and of the same magnitude.

Nonetheless, in addition to the restrictions on directors issuing discretionary bonuses, Europe’s second-largest oil company by market capitalization has introduced measures which it says will help align management and investors’ interests.

Under the new rules, management will be forced to hold shares awarded under Shell’s long term incentive plan for two years after they are awarded.

Annual bonuses will be tied to project delivery, with delay or budget overshoots being punished.

Also, as the bonuses are based on percentages of base salaries, the pay freeze, effective July 2009 to January 2011, will restrain the total amount of the bonuses somewhat.

Shell said it had also introduced a right to claw-back incentives paid within the previous 12 months, in the case of any material misstatements.

In 2004, Shell’s shares dived after it admitted overstating its reserves.

The key metric in the bonus plan remains Shell’s performance against other supermajors — U.S. rivals Exxon Mobil (XOM.N) and Chevron (CVX.N) and London-based BP and France’s Total (TOTF.PA).

In future, Shell’s CEO will have to have a shareholding in the company equal to three times his salary, to provide “greater alignment with shareholders’ interests”.

The current shareholding guideline for executive directors, including the CEO and CFO, is two times salary, Shell said.

Jeroen van der Veer, who retired as Chief Executive in June 2009, received total compensation of $15 million for 2008, according to Shell’s annual report.

Voser, who was Chief Financial Officer until he took over in July, earned $6 million.

Shell’s London-listed “A” shares were unmoved by the news, trading up 0.8 percent at 1,740 pence, compared to a 1.0 percent rise in the DJ Stoxx European oil and gas sector index .SXEP.

(Reporting by Tom Bergin; Editing by Erica Billingham and Louise Heavens)

REUTERS ARTICLE

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